Other Financial Transactions
An RCP non-traditional insurance solution is a transaction "enabler." That is, by structuring a novel insurance instrument RCP is able to remove risks that neither the buyer nor the seller wish to retain post closure, typically due to uncertainty surrounding the risk. Risks, which cause uncertainty, are typically viewed as business risks, which traditionally have not been transferred to the insurance or capital markets. However RCP has, with its proprietary risk deconstruction technique, developed the capability to obtain non-traditional insurance structures for complex risks, which in the context of an M&A transaction could be considered deal breakers. RCP's "enabling" products enhance the negotiating position of the seller or the position of one buyer over the other. These solutions are essentially about removing risks that neither party wishes to bear.
Traditional brokers view insurance as the protection of assets. However RCP views insurance as a tool that can protect earnings as well. RCP solutions can enable a variety of both corporate and individual transactions. If you are considering a transaction but concerned about potential obstacles, contact RCP to find out if an innovative insurance solution can help clear the way.
Sample RCP Solutions Include:
Student Loan Debt Cancellation
Description: The policy will indemnify the Student Loan Lender for losses incurred as a result of its contractual liability for debt cancellation as a result of the death or permanent/total disability of the Student borrower on covered promissory note.
For each covered note, an amount equal to the outstanding loan balance as of the date of the loss plus accrued interest on the loan from the date of the loss event until the date the Insurer receives proof of loss, subject to a maximum 90 days, plus accrued interest on the loan from the date insurer receives proof of loss until the loss payment date.
The premium for each covered loan will be calculated upon a rate per thousand, multiplied by the covered loan's current month average loan balance. Debt Cancellation can be included as a base feature in all loans or as an elective feature at little cost to either the lender or borrower.
Market Significance: Overall, the new Debt Cancellation benefit offers an interesting new tool to reduce administrative headaches, generate greater value to students, and better stabilize bottom-line profit figures for lenders, a win-win situation for all concerned.
Reverse Mortgage Coverage
Description: RCP's Reverse Mortgage Insurance would indemnify lenders for losses incurred when proceeds from the sale of the mortgaged property fail to satisfy the then-outstanding principal and interest.
For a given loan, losses would be measured as of the reverse mortgage loan due date, which we anticipate being the earlier of: the date of death of the last surviving reverse mortgage borrower; the date of the sale of the mortgaged property or other conveyance of its title; the date on which the reverse mortgage borrower violates any applicable loan covenants (e.g. failure to pay taxes and insurance); or the date on which the mortgaged property ceases to be the principal residence of all borrowers for a period longer than 12 consecutive months.
Losses resulting from any of the following situations would be covered: the value of the property fails to appreciate at the expected rate; and/or the reverse mortgage borrower remains in the mortgaged property longer than expected, resulting in higher than expected accrued interest; and/or assuming that the reverse mortgage is a floating rate loan, interest rates increased more than expected during the life of the loan, resulting in higher than expected accrued interest.
Market Significance: Our program is helping expand the non-HECM market from a scale, scope and risk perspective.
Conceptual for
CARBON CREDIT DELIVERY COVERAGE
Risk Capital Partners is developing in conjunction with a leading insurance provider an innovative program to address the delivery risks of compliance instruments generated by projects qualified under the Kyoto Protocol.
Project hosts often located in Asia, Latin America and Eastern Europe look to generate additional revenue or investment by selling the credits produced by their projects. Investment funds and project financing entities buy these compliance instruments as investments. Carbon credit buyers most often companies in countries that have signed the Kyoto Protocol - purchase the credits or the right to buy the credits to address their own Kyoto Protocol compliance needs.
Risk Capital Partners is designing cutting edge solutions focusing on the carbon credit delivery risks associated with a broad range of projects qualified under the Clean Development Mechanism (CDM) and the Joint Implementation (JI) Scheme of the Kyoto Protocol. The range of projects includes:
Oil and gas processing & distribution
Flare gas recovery
Biofuels
Manufacturing energy efficiency
Methane recovery
Biomass
Sequestration
Small wind farms
Addressing Complex Risks with Customized Solutions
Investing in these carbon trading markets poses many risks:
Technology Risk - Will the technology work? Will it create the carbon emission reductions necessary to generate the credits purchased by the investor?
Credit Risk - Will the project or its participants become insolvent or bankrupt before delivering the credits?
Political Risk - What happens if a governmental entity takes over the project or seizes the credits? Are buyers protected if a government intervenes to block the delivery of credits?
Pricing Risk - Suppose the carbon credits are not delivered, and the buyer has to turn to the spot market to purchase replacements. Is the buyer protected if the spot price exceeds the original contract price?
Our goal is to develop a flexible program that can be tailored to address each client's concerns regarding these risks, so that both purchasers and investors can insure monetary losses that may result from any of these classes of risk.
For investors, the loss amount is expected to be based upon the initial investment.
For purchasers, the loss is expected to be the amount by which the price paid in the spot market to replace the undelivered credits exceeds the contracted price.
Risk Capital Partners plans to incorporate flexibility such as:
Policy FormCustomized to include specific conditions not provided by standard insurance policiesLimitsSignificant capacity
Limits vary by projectTermUp to seven years to cover the first Kyoto Protocol period begins on the effective date of the contract and expires on the last carbon credit delivery date specified in the contractProgram StructureInsurance policy covering a maximum of 80% of the carbon credits to be delivered
Primary layer of coverage generally retained by the client
Next Steps
To learn more about protecting against the risks of the carbon credit trading market, contact:
Nemo Perera
1.212.496.7478
Nemo.Perera@rcps.com
